UPDATE 2-Target profit beats Street, shares rise

SAN FRANCISCO May 20 (Reuters) - Target Corp (TGT.N) reported a better-than-expected quarterly profit on Wednesday, as the No 2 U.S. discount retailer offset sluggish sales by keeping a tight control on inventory and expenses, while its credit card business was profitable.

The results come as Target has increased its focus on food and pharmacy items, and the “Pay Less” side of its “Expect More. Pay Less” tagline to draw in shoppers, who are no longer splurging on its high profit-margin trendy clothes and home decor.

Target is seeing strong increases in sales of food and commodity categories at its stores open at least a year, while also maintaining its gross margins, Chairman and CEO Gregg Steinhafel said in a statement.

Target, which is locked in a proxy battle with activist investor William Ackman, said profit fell to $522 million, or 69 cents per share for its fiscal first quarter ended May 2, from $602 million, or 74 cents per share, a year earlier.

Analysts, on average, had been expecting it to earn 60 cents per share, according to Reuters Estimates.

Sales edged up to $14.4 billion from $14.3 billion, but sales at its stores open at least a year, or comparable store sales, fell 3.7 percent.

Target’s results came as BJ’s Wholesale Club BJ.N reported a better-than-expected profit as consumers also came to its stores for low prices on food and other necessities. [ID:nN19420300]

WORKING TO OFFSET FALLING PROFITS

The latest figures mark Target’s seventh consecutive drop in quarterly profit and come as shoppers stick to buying basics instead of splurging on the trendy clothes or furniture that account for roughly 40 percent of the company’s sales.

To improve its sales, Target is trying to change the perception among shoppers that it charges more than Wal-Mart Stores Inc (WMT.N). It is also keeping a close eye on inventory and has cut jobs to lower expenses as sales falter.

Its credit card segment reported a profit of $39 million, down from $181 million last year. But the results marked an improvement from the pretax loss of $135 million it reported in the fourth-quarter.

Shares rose to $44.00 from a close of $41.94 on the New York Stock Exchange on Tuesday. (Reporting by Nicole Maestri, editing by Dave Zimmerman)